It’s time to decouple health insurance from employment

It’s time to decouple health insurance from employment. The reason the vast majority of Americans receive their health insurance from their job goes back to FDR’s wage and price controls  in the 1940s. Since the government made it illegal for employers to pay workers over a certain amount, they added health insurance to benefits packages as a way to recruit and retain top employees. Once the IRS granted health insurance tax-favored status, it has forever remained a way for companies to provide benefits to employees tax-free.

This creates multiple problems. First, individuals are not the ones choosing their health insurance plans, rather their employers are. For many young workers, this means they may be paying for far more generous benefits than they need or want and for older workers it means they may not have enough coverage. If individuals were able to choose their own health plans, they would be able to choose the plans that best fit their needs and budget.  The entire Hobby Lobby Supreme Court case could have been prevented if individuals were purchasing and selecting health insurance rather than employers. ( It also would have been prevented if the government wasn't forcing insurance companies to cover certain procedures and medications, but that is for another post).

Second, the special tax-status of employer-provided health insurance incentivizes companies to provide overly generous benefits that drive up the cost of healthcare. This not only means employees are trading higher wages for insurance benefits they may or may not need, but adds to the increasing disconnect between consumers of health care and who pays for health care. This eliminates downward pressure on prices, which is one reason healthcare costs have continued to rise while other sectors of the economy, especially in technology have seen steady price decreases in recent years. This disconnect ultimately reduces competition at the point of service, thus reducing incentives for efficiency and lower cost alternatives. In the few areas of medicine where insurance is not involved and  patients are shopping around for value such as Lasik eye surgery and cosmetic procedures, we have seen prices reduced dramatically.

In addition, delinking health insurance from employment would increase portability as employees would be able to take their health insurance from job to job.

Giving individuals the ability to determine their own healthcare needs would not only increase competition and decrease costs, it would allow greater choice, portability and freedom for individuals and families. And it doesn't take 18,000 pages of legislation to achieve this goal. A good start would be a one page bill allowing individuals to purchase health insurance with tax-free dollars, just like those with employer provided insurance already do today.

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